Foto af Oleksandr Zhabin hos Unsplash

The money will stabilize the Ukrainian economy after the coronavirus crisis. It comes as the IMF predicts that the economy will improve more than previously expected, but the fund still worry about the lack of reforms. 

The National Bank of Ukraine Governor, Kyrylo Shevchenko, has announced that Ukraine will receive 2.7 billion dollars from the fund this summer after a meeting with the International Monetary Fund, IMF. The money is not part of the conventional IMF program and will not have to be paid back, according to UBN

“An easy $2.7 billion from the IMF might arrive in 2021…This allocation might be very helpful as Ukraine faces its next FX debt payment peak in September ($3.1 billion). However, such ‘windfall cash’ might finally erode the country’s motivation to proceed with the Stand-by Arrangement,” writes Alfa-Bank Ukraine, according to UBN. 

The Stand-by Arrangement refers to a previous deal made between IMF and Ukraine in 2020. Last year, IMF agreed to lend Ukraine around five billion dollars if Ukraine managed to implement several reforms and fight corruption. Ukraine has only received about half due to IMF concerns about the reform-work in Ukraine. 

Hope for even more money

Governor Shevchenko, however, says that he also expects that Ukraine will receive the rest of the money from the Stand-by Arrangement soon, according to UBN. He expressed hope that the Ukrainian parliament soon will pass legislation that will satisfy IMF. 

“We know that the IMF is not primarily about money but about trust in the country. A strong signal to investors,” Shevchenko said.

The Ukrainian GDP slumped by around five percent in 2020, and the number of foreign investments dropped to hardly anything. The Ukrainian economy needs to receive at least 1.4 billion dollars from the IMF to stabilize this year, Denys Uliutin, the first deputy finance minister, told Reuters in March. The Stand-by Arrangement with the IMF expires this year, so Ukraine has to move fast to receive any money from that program. 

“We are in the active stage; we are very advanced,” Finance Minister Serhiy Marchenko told Nasdaq, “There is a hope that in the near future we will go to the Staff Level Agreement.”

IMF unhappy about several things

The IMF suspension of the Stand-by Arrangement with Ukraine comes after Ukraine failed to implement several reforms. Zelensky removed several ministers liked in the West and made changes in managing the National Bank of Ukraine in 2020. Since then, the IMF has been worried about the lack of reforms in Ukraine. 

Recently, the IMF expressed concern about a new law passed in the Ukrainian Parliament in the first reading, allowing citizens to voluntarily declare assets if they pay a one-off tax. It has raised concerns as it might be a way of whitewashing money, according to critics. IMF’s representative to Ukraine, Goesta Ljungman, is also concerned about the law. 

“But if a tax amnesty is carried out, government officials and their immediate family and related persons should not be subject to it,” Ljungman said, according to Nasdaq, “It is also extremely important not to allow the amnesty to be used as a means of laundering the proceeds of crime and corruption.”

Better economic outlook

Despite all the worries, the IMF expects that the Ukrainian economy will grow more than first predicted in 2021 with four percent, one percentage point higher than previously forecasted, writes Kyiv Post. However, it is slower than the world economy’s overall expectation, which is expected to grow by six percent in 2021. 

The Ukrainian Prime Minister Denys Shmyhal recently said that it is likely that the Ukrainian GDP can double in the next decade, which will require 7.2 percent annual growth. 

“Yes, it’s ambitious, although realistic. And it’s not only our government but also independent economists who see it this way. They compared our situation to countries that faced a similar situation. Over the next five years, we will invest EUR 15 billion annually, we will carry out further privatization and pension reform, and the last but not least, we will also liberalize our capital market. All this will enhance development,” Shmyhal said.

Reforms are needed to fight corruption

Anders Åslund, an economic expert focussing on Ukraine, writes in Atlantic Council that any future growth in the Ukrainian economy will depend on reforms. 

“Looking ahead, Ukraine’s worst economic problem remains the absence of property rights, which continues to hinder investment of any kind. Judicial reform was supposed to be at the top of the Zelenskyy government’s agenda in 2019, but since the sacking of the previous prosecutor general in March 2020, everything has gone backward,” he writes. 

“Ukraine’s rule of law shortcomings continue to have an unwelcome impact throughout the economy. In spring 2020, the Ukrainian parliament adopted a long-awaited land reform bill, paving the way for an agricultural land market. Will this reform prove effective without credible property rights? Many investors remain unconvinced. Instead, foreigners continue to purchase Ukrainian bonds happily. This enthusiasm reflects the high yields Ukraine must pay due to legal uncertainty,” Åslund concludes.